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Bitcoin lovers have largely been attracted to the cryptocurrency’s open source network and distributed ledger system. But recent instances of smaller cryptocurrency networks being taken over and attacked have shaken the whole world. What are these attacks and what spurs them? An attack on a cryptocurrency network occurs when an organisation or individual is able to control a majority of the network’s mining power or hashrate. One such type of attack is the 51% attack.
Bitcoin, the premier cryptocurrency today, is secured by a system, wherein all miners or computers processing the network’s transactions agree on a shared ledger. All the nodes or participants verify that they are working on a valid blockchain. So, what if a group of individual miners, who collectively control the majority or more than 50% of the network’s computing power, decide to join hands and control the network? This could lead to differences among the nodes and the formation of forks.
Theoretically, this majority group would also have the power to decide which transactions to approve. The majority holders could potentially prevent other transactions, while allowing their own coin holdings to be spent multiple times. Such an attack would have a catastrophic effect on the reputation of cryptocurrencies.
Does that mean that anybody who gets 51% control of a blockchain network can attack it and even succeed? No, holding a 51% stake does not mean that the entity holding that stake can certainly control the entire network. In reality, an attacker could perhaps only modify transactions that have occurred within the past few blocks. Older blocks that have already been confirmed on the blockchain will be technically immutable because the attackers will need to redo the proof of work for those blocks. And this is not possible.
Another thing to take note of is that as the level of mining becomes increasingly difficult, the chances of anyone carrying out a 51% attack declines.
Cryptocurrency users need to know that this type of attack does not necessarily require control of 51% of the hashing power. The 51% is just the level at which such an attack generally occurs. In general, the more mining power of a particular group, the more the chances of it modifying and controlling future blocks. Recent experience shows that such attacks can even occur at 30% hashing power, if all miners involved are in consensus. So, mining could pose a threat to a blockchain protocol working on the Proof of Work concept – Proof of Work being the process of solving mathematical puzzles which are then verified allowing blocks of data to be added to the blockchain.
Such situations could be avoided by the Proof of Stake consensus mechanism – a new concept which attributes mining power to a person in proportion to coins held. Although a 51% attack will remain a possibility in the Proof of Stake mechanism, it will be a costly option, since the attacker would need to spend a lot of money to acquire the 51% stake. Also, any attack on the blockchain would have a negative impact on the cryptocurrency involved and this would impact the valuation of the holdings of the attacker.
For now, blockchain offers a secure and transparent option for holding digital assets.
Disclaimer
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